Article / 07 March 2017 at 23:35 GMT

Today's Trade: S&P/ASX200 retreats on negative lead from Wall Street

Trading Desk / Saxo Capital Markets
  • Iron ore spot prices held steady, despite a selloff in the wider metals market
  • Weakness in copper has weighed on the Australian dollar
  • Gold hit its lowest level in more than four weeks on the strengthening US dollar
  • Opec's progress in implementing its output curbs supported crude prices
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 (AUS200.i) lost ground at the open, eroding Tuesday's gains. The index was down 0.27% to 5,745.70 at 1024 AEST (2324 GMT, on Tuesday evening).
  • US stocks wavered Tuesday as major indexes were stuck in a holding pattern.
  • The Dow Jones Industrial Average slipped 30 points, or 0.1%, to 20925. The S&P 500 edged down 0.3%, while the Nasdaq Composite fell 0.3%. The VIX rose 1.96% to 11.46
  • The Stoxx Europe 600 inched down 0.3%, on track for a fourth session of losses.

 Copper has taken a beating, and the weakness of the red metal has weighed on the Australian dollar. Photo: Shutterstock

  • With little on the economic or earnings calendar to steer market direction, many investors were focused on upcoming global central bank meetings. The European Central Bank will conclude its monetary policy meeting this Thursday, with investors looking to gauge when it will start winding down, or tapering, its €2.3 trillion ($2.4 trillion) bond-purchase program.
  • The Federal Reserve will also meet March 14-15 and is widely expected to raise short-term borrowing costs. Fed fund futures tracked by CME Group suggest an 84% chance of a rate rise next week. The US Labour Department will release employment figures for the month of February on Friday, the last major piece of economic data the Fed will consider ahead of its meeting.
  • The 10-year Treasury yields edged up to 2.511% from 2.494% Monday, while the WSJ Dollar Index was little changed.
  • In corporate news, shares of Exxon Mobil fell 0.4% after the company unveiled a $20 billion spending plan, which was cheered by President Donald Trump.
  • Shares in Snap fell for the second consecutive day, down 9.8%. The parent of the popular disappearing-message app Snapchat, which made its stock market debut last week, is still trading above its initial public offer price of $17, but is down more than 20% so far this week.
  • In Europe, shares of Deutsche Bank fell 1.8%, bringing its declines this week close to 10% on news of its planned capital raising.
  • Concerns about France’s spring presidential elections also continued to weigh on French shares and rattle bond markets. Benchmark 10-year German bund yields fell to 0.322% from 0.345% Monday, while their French counterparts rose to 0.975% from 0.959%. Yields move inversely to prices.
  • Investors have favored the safety of German debt and sold French bonds amid concerns that anti-euro candidate Marine Le Pen could defy polls to pull off an unlikely victory.
Source: Bloomberg,

Local markets
  • Bank of New York Australia ADR Index +0.5%, BHP Billiton ADR -0.6% to A$25.11 equivalent, 1.5% discount to last Sydney close, Rio Tinto ADR +0.1% to A$53.65 equivalent, ~13$ discount to last Sydney close.
  • Gold hit the lowest level in more than four weeks as the US dollar strengthened and expectations for a US interest rate hike this month weighed, though moves were muted ahead of US payroll data this week. US gold futures for April delivery settled down $0.85 at $1216.10/oz. This sentiment is being echoed in ETFs, with holdings in SPDR Gold Shares (the largest gold-back ETF) falling to the lowest level in more than a month. This also mirrors moves in other safe haven assets, such as US treasuries where yields have climbed for the past seven days. Goldies were down 0.58% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil closed near $53/barrel in New York as Saudi Oil Minister Khalid al-Falih said that Opec and its partners are making good progress in delivering promised output curbs. Saudi Arabia has yet to decide whether to extend the cuts into the second half of the year, al-Falih said in a speech at CERAWeek in Houston on Tuesday. Opec members Iraq and Angola signalled at the same conference on Monday that they’re willing to prolong the accord if it’s necessary. West Texas Intermediate for April delivery fell $0.06 to settle at $53.14/b on the New York Mercantile Exchange. Total volume traded was about 17% below the 100-day average. Prices averaged $53.46/b. Brent for May settlement slipped 9 cents to $55.92/b on the London-based ICE Futures Europe exchange. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore spot prices held steady, despite the selloff across the wider metals complex. Steel and iron ore futures inched higher in China, with traders waiting for clearer signals on the supply-demand balance. Exports of iron ore via Port Hedland fell from 40.3mt in January to only 35.7mt in February, reflecting weather related disruptions to operations in Western Australia. Spot iron ore closed at $89.80. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper falls a fourth day as stockpiles in LME-tracked warehouses jump 33% in two days, most since 2004. Zinc slid 1.7% to end at $2693, the lowest since January 17, as investors awaited more evidence that closures and suspensions of major mines last year were tightening the refined market. Nickel tumbled 4.1% to close at $10,645, the biggest one-day fall in nearly two months. Aluminium finished unchanged at $US1876, lead traded down 0.4% in closing rings to $US2234 and tin also shed 0.4% to $US19,375. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Trade ex-dividend: Brambles, Corporate Travel Mgmt, Healthscope, IOOF, Iress, MYOB, Steadfast Group, iSentia.
  • AGL Energy (AGL), Origin Energy (ORG): Solar may kill demand growth for Australia power cos: BNEF.
  • Bellamy’s (BAL): Maurice Blackburn says class action against company filed in court
  • BHP Billiton (BHP): Chile Minister says still no talks at Escondida to end strike
  • Downer EDI (DOW): Buys Hawkins business in New Zealand.
  • Fairfax (FXJ): Options volume surges on block trades.
  • Fonterra (FSF): Whole milk powder avg price falls to $2,782/t.
  • Fortescue (FMG): More rain for soaked Australian ports seen boosting iron ore.
  • Mayne Pharma (MYX): May move after President Donald Trump tweeted about new system for lower drug prices in America; ADRs fall as much as 4.6%, declining for a fifth straight session in longest losing streak since December.
  • Newcrest (NCM), Northern Star (NST), Evolution (EVN), Saracen (SAR), Regis Resources (RRL), Resolute Mining (RSG): Biggest gold ETF sags most in seven weeks on Fed rates view.
  • Origin Energy (ORG): Australia gas for export may be diverted to domestic market, Managing Director Frank Calabria says.
  • Platinum Asset Mgmt (PTM): Funds managed $A22.9bn at end-February
  • Qantas Airways (QAN), Virgin Australia (VAH): Qantas unit Jetstar, VAH to pay penalties for consumer law breaches. Separately, Qantas mandated four banks for $A850mln revolving credit facilities.
  • Rio Tinto (RIO): Australian police start investigation into Rio Tinto payments.
  • Sonic Healthcare (SHL): Scheduled to host investor briefing.
  • Tabcorp (TAH), Tatts Group (TTS): Corporate regulator may delay ruling on merger, although deal still expected to proceed: AFR.
  • Ten Network (TEN): Packer said to have made little headway in finding buyer for 17.88% stake: Australian.
Companies going ex-dividend this week
  • Friday: GTN, WTC.
Broker upgrades, downgrades
  • Capitol Health (CAG): Raised to outperform from neutral at Credit Suisse.
  • Clean TeQ (CLQ): Rated new outperform at Macquarie, PT A$1.50.
Stock to watch: Monadelphous (MND.xasx)

After breaking the inverse head and shoulder formation, engineering and construction company Monadelphous (MND.xasx) is struggling below the first target at the 23.6% extension level of this head to shoulder range.

Whilst maintaining a continued bullish view over MND, we cannot rule out a retracement which should be shallow (stock goes ex div overnight) and a retest of the neckline at $A12 down to $A11.82 will provide an attractive buying opportunity.

 Monadelphous (MND.xasx) share price trend

S&P/AX200 (AUS200.i) breakout possible

The S&P/AX200 (AUS200.i) looks interesting as it is converging into the end of the triangle that has formed over the last three weeks. The recent resistance level happened to be 61.8% retracement of February high at 5,831 and the March low of 5,672.

We are anticipating a breakout in the very near term but direction could go either way. Further rally would ideally require at least one daily close above 5,775.
S&P/AX200 (AUS200.i) trend
AUDUSD looks fragile

AUDUSD rallied soon when the RBA put rates on hold but this did not last long, as copper (HG) sold off again extending the losses to breach last month’s low at $261.20.

Strength from US dollar continues to limit upside on AUDUSD and selling could accelerate downwards if we see a breakout below the key support level zone at 0.75-0.7520.

AUDUSD chart

XAUUSD loses ground

US treasury yield looks strong and this is causing precious metals to slide downwards. We were quite surprised to see gold (XAUUSD) failing to respect the previous January resistance level at $1,219. The next key support level would be $1,210 (intersection of 38.2% retracement December 16 low - February 17 high and support level 1 from the monthly pivot points).

Selling pressure is expected to remain unless we see a reversal of rising yield which seems like an unlikely scenario.
XAUUSD trend
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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